How you can do your Tax Planning: EPF and PPF Explained | How to Save Tax ?

Namaskar Friends! Welcome to another Educational article in which I will tell you about Personal Finance. Before this, I made educational articles on ‘How to Start Your Own Business’ about how you can start a business, on 'Mutual Funds', about where you can invest your money.

And in today’s article, I will tell you about how you can save your income tax. Or how you can do your tax planning. If you are a salaried employee and you pay income tax, then I will tell you how you can pay less tax. 

If you are an employee, then it may be possible that you already know about these methods. But in case you don't, it is very important that you should. And if you plan on working in the future, then you should definitely know about them. Come let's see!

Tax Planning

Tax Planning:

Friends, if you are an employee or plan to be one in the future, you can save on income tax by investing in the right places. The Section 80C of our Income Tax Act, inform us about the places where you can invest to pay less tax. It is known as 'Deduction'. If you invest in these places, you will get a deduction from your income. 

So that you don't have to pay tax on that amount. So basically you are saving on your income tax. Section 80C says that if you invest a total of ₹1.5 lakhs in specific things, then you won't have to pay tax on that amount. 

So I am going to tell you about those specific things. And will also tell you about the most popular and the safest options of among these. 

1. Employees' Provident Fund (EPF)

The first option is EPF. Employees' Provident Fund. It is one of the older and popular schemes introduced by the Government. You can apply for an EPF if you draw a salary, whether you are employed somewhere or self-employed. 

As per this scheme, 12% of the salary that you draw is invested in EPF, while your employer invests an additional 12% on your behalf. So in total 24% of your salary goes into EPF. 

Of the 12% that you pay, you don't have to pay tax on ₹1.5 lakhs per year. And the amount that the employer pays on your behalf, you don't have to pay tax on any of it. So you save a lot on your income tax if you invest your salary in EPF. 

Once you invest in EPF, you earn an interest of around 8.5% on your savings. The exact interest rate is decided by the Government every year and may fluctuate a little, In the Financial year 2017-18, it was 8.55%. 

  • When can you withdraw the money from EPF? 

Generally there is a lock-in period of 5 years. Which means you cannot withdraw the money before 5 years . Even after 5 years there are a few conditions limiting the amount of money you can withdraw, according to the reasons for withdrawal. 

For example, if you need money for your child's education or marriage, then you can take withdraw money from your EPF account. But generally this policy was made by the Government to provide for you after your retirement. When stop working, you can withdraw your money from EPF. 

That was the purpose for which it was created and named after. While you are an employee, you invest in Employees' Provident Scheme, and when you retire and stop drawing salary, you can use this Fund. 

Investing in EPF is very simple. Simply go to your employer and ask them to register you for an EPF, if they haven't already. Once that is done ask for the UAN number. After which, download the Umang app. This app was introduced by the Government. It shows the monthly balance of your EPF account and the interest earned. 

If you want to know more about EPF, I suggest that you check out the Frequently Asked Questions section of this Government website. This is the link to the website, and you can research any question, that you have, here. 

Generally I would like to say, if you are a salaried person, and you can afford to save 24% of your salary, this is a good option for saving and you should definitely go for it. 

2. Public Provident Fund (PPF)

Similar to EPF, another amazing scheme by the government for tax saving is PPF. Public Provident Fund. This is applicable for everyone and it is very simple. 

Basically you can invest ₹1.5 lakhs in a year per person. And you can get returns at 7.6% of interest rate. The government decides its exact return rate every year, like EPF. But it sticks to around 7.6%. 

You can start a PPF account for every person in the family, even if you have kids of less than 18 years old, and invest ₹1.5 lakhs per year in the PPF account on their behalf. 

For example, if you invest ₹1.5 lakhs every year for 10 years, and the interest rate remains 7.6%, after 10 years your investment amounts to ₹15 lakhs. But you get ₹23 lakhs. So you can see the huge difference between ₹15 lakhs and ₹23 lakhs So I will recommend that you should definitely go for a PPF. 

And the best thing is that on the ₹23lakhs that you withdraw, you do not have to pay any tax. But if you had invested the same amount in some other place, like in a fixed deposit or stock market, you would have had to pay tax on the returns. That's the difference. 

  • How do you register for a PPF? 

It is very easy, you can go to any post office or a designated bank to register for PPF. There are no set rules about how you have to invest in the PPF. You can deposit a certain sum monthly or yearly, The lock-in period for PPF is 15 years. It is a long term investment. 

If you want to withdraw the full amount from the PPF account then you can do so only after 15 years. You can make partial withdrawals before the 15 years but only after the maturity period. 

If you want to know more about this maturity period or PPF, then I have linked the website for the State Bank of India, they have explained PPF very thoroughly. It is in the description as well for you to check it out. 

Another major advantage of EPF and PPF is that they are Government schemes. And are the safest options to invest because of zero risk. The market may fluctuate but your money will be safe. The returns in the stock market or any other place are unpredictable. But here the return is fixed and the risk is zero. 

3. Equity Linked Saving Schemes (ELSS)

The third method of investment in a tax saving scheme is ELSS. Equity Linked Saving Schemes. ELSS is a type of mutual fund and is also covered under Section 80C. 

If you invest money in this, ₹1.5 lakh of the investment per year will be exempt from tax. But it is linked with the market, so the returns will fluctuate with the market. Potentially, it can give returns much higher or lower than EPF or PPF, because it depends on the market. 

  • How can you invest in ELSS? 

I have told you this in the article about the Mutual Funds. You can go through an Asset Management Company, or use an app like the Zerodha app. 

Zerodha app is for Mutual Funds where you can find and filter several mutual funds. The ratings of different mutual funds are also available. including ELSS. So you can look into different types of ELSS funds and check their reviews. 

Zerodha app shows you the historical performance of all the mutual funds. That is the return rates of the mutual fund in the last few years. You can check this for every mutual fund. If you invest in ELSS, check its historical performance. 

However, you cannot predict the future of the market based on historical performances, but you can get an idea of what kind of returns to expect. 

For example, assume that you invest ₹2 lakhs in an ELSS which increases to ₹2.5 lakhs after 3 years. You do not have to pay tax for ₹1.5 lakhs of it, nor on the interest that you earn in the 3 years. However, there is a new tax of 10% introduced in 2018, Long Term Capital Gains tax. It will be applicable on the amount that you withdraw. In case it exceeds more than ₹1 lakh. There will be no taxes other than this. The lock-in period for ELSS is 3 years. 

4. Life Insurance (LIC)

Fourth option for tax savings is Life Insurance. But life insurance is not considered an investment, because you do not invest in life insurance for the returns. You invest in life insurance for security. If you invest in life insurance, it is also included under section 80C. You do not have to pay tax on ₹1.5 lakhs of your investment. 

My suggestion while taking a life insurance would be to take pure insurance, Known as "Term Insurance". Nowadays, there are many life insurance companies who collaborate with the banks, and try to sell schemes where they show high returns of investment to you. 

However, stay away from these things because they have high risks and hidden charges. Unfortunately, the ₹1.5 lakhs limit I am talking about in this video, is for the total investment. 

Which means, for example, if you invested ₹10 lakhs in EPFs, PPFs, Life Insurances and ELSS, then out of the ₹10 lakhs, only ₹1.5 lakhs per year would be exempt from tax. As per the Section 80C. 

Similarly, there is a section 80D for health insurance, whose maximum limit is ₹50,000. If you invest up to ₹50,000 in health insurance it will be tax free.

5. Savings Bank Account:

If you have kept your money in a normal savings bank account, and you get interest on it at around 3-4%, the interest that you get there is exempt from tax till ₹10,000 rupees This is defined in section 80TTA. 

This is a new section in the Income Tax Act. Which states that the interest from saving account will be exempt from tax till ₹10,000. These were the most popular ways of saving taxes, which is a recommended by the Government itself.


If you want to know more about these methods and the benefits applicable to a salaried person, then visit this link. This is a link to a Government website. You will get to know more about the benefits available to a salaried person, here. 

My final suggestion would be to read up on the topic and research on them, only when you understand these methods properly, take any action.If you like this article, share it.Thank you!

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